Importance of Incoterms

Topics: International trade, Contract, International Chamber of Commerce Pages: 5 (1546 words) Published: October 24, 2012
What is the importance of incoterms? Explain your views with example? The goal of incoterms is to alleviate or reduce confusions over interpretations of shipping terms by outlining exactly who is obligated to take control, pay costs or passing of risk of loss or damage at a particular point in the shipping process. The INCOTERMS were created by the ICC and regulate the rights and obligations of buyers and sellers in international commodity handling. The incoterms are international rules for structuring a particular group of contractual clauses that are used in commercial agreements. Incoterms identify the physical point in the supply chain where risk of loss or damage passes from the seller to buyer. It also determines the point in the supply chain where responsibility for transportation and customs related costs shift from the seller to buyer. Finally, incoterms identify specific functional responsibilities between the seller and buyer related to the delivery of goods. In general it shows and regulates: * The division of costs

* Point at which risk passes from seller to buyer
* Delivering and taking delivery of goods
* Proof of delivery , transport documents or equivalent electronic message * When merchants conclude a contract for purchase and sale of goods, they are entitled to freely negotiate the special terms with regard to price, quantity, properties, etc., as well as carriage, risks and surrender of the goods. Businesses involved in exports, however, are frequently faced with different interpretations of identical formula and national commercial practices. To counteract the resulting imponderables, the parties to the contract can use what are known as Incoterms©, which offer a range of international rules for interpreting the main forms of contract used. Specifically, the Incoterm agreed by the parties determines which party is liable for the respective costs in the transport chain, for loading and unloading the goods and Customs clearance and at what point a party bears the risk of loss for an international shipment. Incoterms© also affect the basis on which the imported goods are valued for Customs. * CFR - CIF - CIP - CPT - DAF - DEQ - DES - DDP - DDU - EXW - FAS - FCA - FOB * Incoterms© (International Commercial Terms) are devised by the International Chamber of Commerce in Paris and observed by the most important trading nations. All 13 Incoterms© currently used are listed and explained below according to the Vendor's increasing responsibility. Use of these Incoterms© is voluntary and must be contractually agreed. The Incoterms© most frequently used in practice are "ex works", "free on board", "costs, insurance, freight" and "delivered duty paid". For example:

Cost, insurance, freight (CIF)
The "cost, insurance, freight" (CIF) Incoterm can only be used if at least part of international carriage of the goods is by water. The seller (exporter) is responsible for transporting the goods from his place of business to the named port, loading onto the ship, clearing the goods for Customs in the exporting country and paying international freight costs and must also bear the corresponding carriage insurance in favour of the buyer (importer). Title transfers when the goods are on the ship. If the goods, which henceforth belong to the buyer, are damaged or stolen during international transportation, the buyer must assert his insurance claim on the basis of the insurance taken out in his favour by the seller. The buyer must bear the cost of Customs clearance, carriage and insuring the goods in the importing country. If the Customs valuation basis is "free on board" (FOB), the international insurance and freight costs must be deducted from the "cost, insurance and freight" (CIF) price. The "cost, insurance, freight" Incoterm takes the form "CIF, named destination port". If, for example, the goods are exported from Piraeus, the wording is "CIF, Piraeus".

2. a) what are my risks?
Risks of the...
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